Kuwait Workers Strike Helps Prevent An Oil-Price Collapse
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Kuwait has unintentionally come to oil’s rescue.
As the market reels from major oil producers’ failure over the weekend to reach an agreement to cap production at January levels, Kuwait announced that its own crude production dropped by more than half on Sunday because thousands of oil workers have gone on strike.
The lack of a freeze deal pushed prices for West Texas Intermediate crude CLK6, +3.42% down by 58 cents, or 1.4%, to settle at $39.78 a barrel on the New York Mercantile Exchange and Brent crude LCOM6, +2.89% to $42.91 a barrel on the ICE Futures exchange, down 19 cents, or 0.4%.
Both benchmarks, however, had seen much bigger losses overnight, with WTI dipping by more than 6% to as low as $37.61.
State-owned production company Kuwait Oil Co. said that because of the strike against government plans to cut wages, output from the country, which is a member of the Organization of the Petroleum Exporting countries, has fallen to 1.1 million barrels a day from nearly 3 million barrels a day.
“There is little doubt that the Kuwaiti strike is limiting the slide in prices,” said James Williams, energy economist at WTRG Economics.
WTI prices may fall between $5 and $10 a barrel—back toward the $30 level they were trading at when talk about the production freeze meeting started driving prices higher.
But Williams said that the strike, for now, is “preventing crude from reversing all of the gains that came in anticipation of the meeting.”
While the strike may be short lived, “ongoing OPEC production disruption, gradually declining non-OPEC production, as well as planned maintenance in the face of resilient oil demand in 1Q have recently pointed to improving oil fundamentals,” analysts at Goldman Sachs said in a note Monday.
“This leaves the market reaction early this week as uncertain, with risks skewed to a sharp sell-off only should the Kuwait disruption prove much smaller than suggested so far,” they said. Either way, the weekend headlines will further support the already high level of price volatility.”
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